China’s wood industry – challenges and solutions

I was doing some reading about China’s wood industry this weekend and the implications for the furniture industry in China. The picture of China often painted is as a country that lays waste to the environment. But in fact since the late 1970s China has increased its forested lands from 8 % to 20% ( World Bank statistic) through an aggressive tree-planting program. The program is meant to reduce erosion and prevent flooding. And China protects these newly forested areas. Lumber and furniture Mills therefore have to rely on domestic plantation lumber and on imported lumber for which there is great demand in China. But it is still not enough as there are about 15,000 furniture factories in China and China’ is the world’s greatest consumer of furniture. Not to mention that over 50% of global plywood and MDF production occurs in China,

One of the interesting things that is happening now is that the Chinese are developing many bamboo alternatives to wood as timber resources in China are pushed to the limit. If your industry is home furnishings or flooring then you are probably starting to see things like “plybamboo” Bamboo LVL (laminated veneer lumber), Bamboo veneer, bamboo lumber. China grows about 8 % of the world’s bamboo, about 54 million hecacters so supply is abundant. The next time you have a project which uses wood, ask your vendor about bamboo substitutes. And concentrate on a vendor in the South ( Guangdong, Fujian, Guangxi ) where bamboo is plentiful and where furniture production facilities are more advanced.

As I always say, do your research and target your suppliers accordingly.

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In the China business a name is not just a name

I see a new trend with China vendors these days. Sales and account managers are taking western names. And I don’t mean just western first names but last names as well ! I realized this the other day when a vendor came to visit me here in Tokyo. He came with two people from his sales group one of whom I had been told beforehand was a guy by the name of “Bob Smith.” I was told this person spoke English so I just assumed that he was from the US or Canada or another English speaking country. But lo and behold, when they showed up there was the Chinese “Bob Smith.” Of course I wanted to ask him why he chose this name but I didn’t want to embarrass him. And then yesterday I got an email from a furniture vendor in China signed by “Tom Mead.” But when I read the email – a sales email – it was obviously written by a Chinese national ( I read enough of them so I can tell). And yet another email today. Same thing. Chinese vendor. Non-Chinese name.

I guess business is so slow for some vendors now they will go to any lengths to get business. Silly as it seems it is effective. I had actually seen Bob Smiths name copied on many emails before I actually met him the other day. Subliminally it always lent an air of credibility to the vendor’s emails seeing that they had in their company someone who was probably a western national.

Chinese vendors with western names. All the more reason why you need to visit your vendor before you give them an order.

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When you go to China, drink the water

My Toronto client stopped in Tokyo yesterday on his way to Shanghai and we had dinner. This is his first time in China and so I was giving him some last minute advice. He said he had been told by someone that he cannot drink the tap water in China and that even bottled water can be fake. He seemed to be somewhat concerned about this and I told him not to worry. I told him that no one drinks the tap water in China, not even the locals, unless they boil it first.

As far as fake bottled water, yes, maybe it happens but he should not be concerned about it. He is staying at a western chain hotel in Ningbo and there he should be able to stock up on legit bottled water and carry a few bottles with him when he is out during the day. Vendors will give him bottled water as well and he should drink it without worrying about where it comes from. I told him that at no point should he give voice to his concerns about safe water in China because the vendor might interpret that as sign that my client was looking down on China. I then related my experience of travelling to China with a colleague who asked the vendor about the ice cubes in her Coca –Cola and whether they had been made with bottled or tap water. She had arrived in China with very negative impressions of China to begin with and did not heed my advice to act politely. The vendor did not react favorably, I found it embarrassing and let’s just say it did not help an already strained relationship between our two companies.

As I told my client 入乡随俗. ‘ru xiang sui su’ That’s Chinese for “when in Rome do as the Romans.” Or you might say, when in Rome don’t complain to the Romans about the Roman water.

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The complexities of global trade and the risks of forecasts

I met with a Chinese vendor today who just happened to be in Tokyo on a sales trip. We had lunch and he was explaining to me the challenges his industry – medical supplies – faces. His company does a lot of business overseas, it supplies Walgreens/CVS and Wal-Mart and many other big stores in the US and Europe. And his company has a significant presence here in Japan.

As regards his Japan business, the vendor explained to me that following the March 2011 earthquake his company, and other companies like it, saw a big spike in business. Many Japanese companies, medical supply and other, placed big orders for first aid supplies with their vendors in China. The reason is that sales of first aid supplies in Japan rose dramatically after the earthquake, as one would expect. The inserts in the morning papers at that time were full of advertisements from local home centers for first aid supplies and even now if you walk into a home center here in Tokyo you will see a significant section for disaster relief supplies. The problem though is that people have stopped buying these supplies now and companies here are saddled with excess inventory. Chinese vendors seeing a big increase in their orders from Japan two years ago, started to over-produce and now they face the same problem: too much inventory. So the Japanese are not buying and the Chinese cannot get rid of their inventory, causing many companies to go out of business.

I thought this was very interesting because it shows how hard it is to predict consumer behavior and how risky it can be to make assumptions.

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An email from a prospective client. Problems and answers

I had an email last month from a prospective client seeing if I could help him source some indigo yarn in China. He told me that he had a vendor lined up with whom he has had discussions over the past ten months. But he complained that the vendor would not give him a sample and also that the vendor had recently raised their prices by quite a bit. A few things came to mind quickly.

1.) No vendor should be unwilling to do samples. Even for yarns and fabrics most vendors can do strike-offs or hand looms. Of course there may be set-up and sample charges, even to do a strike off, but you should not do any business with a vendor who says that they cannot give you a sample. And do not give any vendor an order until you have approved a sample. Do not accept vendor reassurance that something will be corrected in production, even if it is a very minute problem. If you don’t want it in your production make sure it is not in your sample.

2.) It is unreasonable to expect vendors to hold costs over ten months (though some will do so). Many cotton yarn suppliers in China have to source yarn from other countries like India and Pakistan now because domestic cotton in China is about double the price of imported cotton. And many spinning mills have gone out of business simply because they do not have the channels to import cheap cotton from the US. In fact China’s importation of foreign yarn rost about 56 % from Sept to Nov last year. It is not realistic then to expect that the vendor would be able to hold prices.

3.) Sourcing a yarn supplier in Northern China does not seem like the way to go. When you source in China you should identify the areas where your vendors are in the greatest number. You will have more of a choice of vendors and lower MOQs. Costs may also be lower. Just as a test I went to alibaba and did a search for yarn vendors in China. Results returned 94 pages of yarn vendors. When I did an advanced search for Jiangsu Province (Eastern China) I got 54 pages. When I did the same for Shandong Province (North) I got one page. In all fairness to the person who emailed me, he told me that he was working with a vendor in the North because they have better environmental controls. Clean production t is definitely something you want to look for and emphasize with vendors. But I am sure there are other vendors in China who have the same controls and are in more strategically located areas. It is worth doing the research to find them.

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Why you need to run a credit report on your prospective vendor.

I always advise people to run credit reports on vendors they might want to do business with. This is especially important if you have met a vendor on a B2B site and have never actually visited them in China. A credit report will allow you to learn about the vendor and make sure they are being truthful with you (if they tell you they are the manufacturer) and also to tell you if they have had any problems or litigation in the last 3-5 years. It will really give you a better sense of whom you might be dealing with, assuming you just cannot travel to China to audit them ( what you really need to do and what I always advise doing).

Running a credit report on vendors you might want to do business with is important now more than ever because credit it very tight in China now. Regional banks have made a lot of bad loans over the past decade and in order to curb this behavior the Chinese Central Bank has drastically cut lending to regional banks. It wants to force regional banks to collect on their outstanding loans rather than paper them over with new loans. In other words, if you work with a vendor who needs a loan to do your order you may run into problems. So you really do not want to become involved with a vendor who is not in good financial standing. And a credit report should be able to tell you that. I think that is worth $ 250.00.

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Book Review: China Streetsmart by John Chan

China Streetsmart came out in 2003. A lot has changed in China in that time but much in this book remains relevant in 2013. Unlike most of the China books I review, which are written by China academics or veteran Journalists, China Streetsmart was written by John Chan, a Canadian by birth and a businessman who has lived and worked in China for many years .

China Streetsmart is more a book targeting overseas companies who want to market their products in China and is less a book relevant to companies that source in China. However, whether you are selling in China or buying from China much of the advice in China Streetsmart is still applicable.

Chan stresses what is necessary above all else when you do business in China: common sense. This is something that many foreign companies get wrong when they go into China. They are more ideal than practical. They dream more – about the quick profits they are going to make – than they exercise common sense – in coming to an understanding that being profitable in China takes time. And sometimes it takes years.

Chan very helpfully outlines what he calls the “six common sense action steps” which are as follows:
1.) Maintain management consistency
2.) Be flexible and adaptable
3.) Be patient and thorough
4.) Think win- win
5.) Be detailed
6.) Maintain a healthy attitude.
These are all things which even today are applicable when doing business in China. Why are these steps important to remember ? Let’s look at # 3 above. Many people when they source in China are focused on driving down costs in negotiations with vendors. What they forget is that vendors need to make a profit as well. So Chan’s advice, correct in my opinion, is to not to forget your vendor’s margins and respect them.

About half the book contains advice on how to find local partners, staff offices, set salary levels etc. There are also sections on issues in China that are no longer relevant today – such as China’s entry into the WTO in 2001 and unemployment early in the last decade. In other words if you are sourcing in China nowadays there is a lot of the book which you can skip.

One of the most useful aspects of the book are the numerous case studies, success or failure often depending on how much common sense was exercised by the foreign party when they entered China. You can never read too many of these stories, becuase the clues to your success may be contained in the failure of others. The only downside is that China Streetsmart starts to read like a textbook before too long. But in a sense that is what it is.

Is China Streetsmart a book you are going to want to curl up with on your flight to China ? Probably not. But is China Streetsmart nevertheless a a good primer that you should read before you go there to do business. Definitely.

Here are some other book reviews:

Poorly Made in China
One Billion Customers
China Shakes the World
The End of Cheap China

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Talk about pollution with your China vendors

What people are saying about the EAC blog:

“After much searching I came across your blog and found it to be full
of valuable info.”
– from a start up Mompreneur in Canada

Pollution in China is a serious problem as everyone found out last year when Beijing’s unhealthy levels of air pollution made headlines around the world. When I lived in China in the 1990s pollution was a problem but on one really cared (if they even noticed). Had I raised the issue of pollution with a vendor then, I would have been perceived as bourgeois and vendors would have ignored me. Whether a vendor had systems in place for clean discharge of waste was a subject that never came up for discussion. Even as recent as five years ago one sensed that pollution was not a concern for vendors.

Things have changed. Under the new leadership of Xi Jinping and Li Keqiang, China is finally addressing the problem of environmental pollution. In the past week Premier Li’s cabinet has approved a series of 10 measures aimed to combat air pollution and just yesterday China’s Supreme Court expanded the authority for local officials to crack down hard on polluters. Pollution is now serious business in China. If your factory pollutes it will very likely be shut down.

When you visit your vendors in China pollution is definitely one thing you want to discuss with them. You want to ask them if they are compliant with local environmental laws and ask them to show you how they are compliant. Even if you have been doing business in China for some time with the same factory, and have never raised the issue you should raise it now. Vendors know about the new laws and if you know about those to they will respect you and you will lessen the risk that a factory will be shut down right in the middle of your production. And this will happen. When Beijing was experiencing dangerous air pollution this past winter, over 100 factories were shut down.

China is different nowadays. You can discuss pollution with your vendor.

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Asking vendors for references – don’t waste your time

What people are saying about the EAC blog:

I want to thank you for your very informative and helpful blog. I took over the day to day management of a small sourcing agency based in Ho Chi Minh City Vietnam about a year ago and your blog has proven invaluable.
-from a sourcing agent in Vietnam

I am evaluating some suppliers now and, as I always do with these projects, I ask suppliers to list companies they have manufactured for. This will give me an idea of how global they are, if they are used to things like audits – in the case of Wal- Mart suppliers – and the quality and range of product they are capable of producing. However, I have no way of knowing whether the info they provide to me is truthful or, if it is truthful whether the vendor in questions was a good supplier for the companies they have listed. I have worked with some vendors over the years who did orders for global brands but their quality or delivery time left so much to be desired that I knew it was pretty much one order and out. But yet they always dropped the names of these brands when trying to solicit new business.

There are China sourcing companies who advise getting references from factories and actually checking them out. If the firm will not let you check their references, they say this is a red flag and advise not doing business with them. In fact this advice sounds more practical than it is for several reasons:

1.) Checking references is not really part of the Asian business culture, at least not in the two countries where I have experience, Japan and China. If you are applying for a job you may be asked to submit references. But people will most likely not check them. This is in stark contrast to the US where checking references is regarded as a critical step in the process of hiring someone. China vendors do not understand this.

2.) You are potentially asking for a reference of a company whose product you compete with. There is conflict of interest written all over this, for both you and the vendor. Vendors not knowing the market in your country may think you are a competitor of their current customer and that their current customer would not be pleased if they found out their vendor was making product for their competitor.

3.) Most China vendors will in fact not be willing to provide you with contact info of a company they have manufactured for. I have always assumed this but to test this assumption – and for this blog post – I emailed 3 vendors and asked them if they would be wiling to provide me with contact info of their vendors should I give them an order:
Here are the replies I received:

Vendor A

It is illegal to get out our customers information. I am sorry that we are not able to do against our company’s rule. I would like to let you know the brands we produced and mass production now, Company Name in US, Company Name and Company Name in UK. These brands are in middle-range market and high-range market. Regarding the others you concerned, when we start to do business, we could get to know more about each other and cooperate very well! Welcome to your trial order to start our business!!

Vendor B

Actually, we have the experience to provide New Customers with our old Customers in formations that we have worked with, but there is never any one asking for contact information. But for me, unless the one that i know they are really a big and good one, then i will provide the contact information to them. otherwise no need. But also, i think we need to confirm with our old Customers first whether they will allowed us to provide their contact information to others.

Vendor C
Before giving you the Company Name. contact information ,I need to ask if they would like to give their information to others? Once I get their approval, I will give you it!

Even though Vendor C said they would consider giving me contact info, I tend to believe they would not in fact do so, as they make it contingent on their customer’s approval. So what you are doing here is potentially writing off good vendors because the will not provide you with contact info, for one reason or another. I think more than anything then asking for vendors contact info is another example of taking western business concepts and forcing them onto your China vendors.

So what do I suggest you do instead ? Run a credit report on your vendor. This will provide you with some valuable information on which to base a decision to go foward with them or not. And if you visit the factory prior to giving your vendor an order you can ask them to show you invoices of previous overseas companies they have done production for. By looking at the dates on the invoices you can get a pretty good idea if the vendor maintains pricing and QC standards. Most vendors should be willing to share this info with you.

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If you are a woman entrepreneur, there is no better place to be than in China.

What people are saying about Mulberry Fields
“I have already learned a great deal about China and your business through your website and blog posts. Very impressive.”

I remember when I first lived in Shanghai years ago I noticed that in most of the households I came into contact with the husbands did all the shopping, all the cooking and a lot of the domestic chores. In fact, one of the popular expressions on the street at the time and one of the first Chinese phrases I learned was 妻管严 qi guan yan which is the Chinese phrase for “henpecked husband.” It seemed all the men in Shanghai were henpecked in those days.

These days when I think back to this experience I see it as emblematic of the real power that women in China possess. As Chairman Mao once said. 女人撑起半边天 nu ren cheng qi ban bian tian. Women hold up half the sky.

And this is why I would say that at least on half of the projects I work on at any given time in China I am dealing with female vendors. As an American this is not unusual to me. After all over 40% % of managers in companies in the US are women and quite a few of my own bosses in the US have been women. In China I don’t know what the figure is but from a my online research I think the percentage of female managers in companies and organizations is probably around 30%. This is all the more surprising when you consider that China is the society that gave us foot-binding and is a culture which still strongly favors male over female heirs, especially in rural areas. And there is still much discrimination against women in China in the absence of fair workplace labor laws and equal compensation for the same job.. Yet, women do well in China because they hold up half the sky.

At the Global Summit of Women held in Beijing in 2010 it was stated that there are over 300 million women entrepreneurs in China now. That is more female entrepreneurs than the entire population of the US. And other studies support this opportunity for women. About 20% of CEOs in Chinese companies are women as opposed to just about 5 % in Europe and the US. 34 % of senior level managers in China are women while the global average is about 20 % and the average in Japan is a pathetic 8 %.. And if that is not enough for you consider that 7 of the world’s 14 self made billionaires are Chinese women.

Because in China women hold up half the sky.

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